OPEC Accord May Prove Too Complex to Implement

The accord reached this weekend by the Organization of Petroleum Exporting Countries might be termed an Islamic version of a Rube Goldberg contraption--a jury-rigged plan that might prove too complicated to work.

If so, it will aptly reflect the deep divisions and complex relationships in the oil-producing nations of the Persian Gulf, especially in view of the Iran-Iraq War, that are even more pronounced when oil prices are down instead of up.

Details of the quota plan made public Saturday suggest that it is less than advertised and only half-completed. It places a heavy burden on Saudi Arabia to use diplomatic pressure on Iraq in coming weeks to make the agreement do what it is billed to do.

That was something the Saudis were not able to do during last week’s meeting. Iraq, trying to boost oil production to finance the battle against Iran, refused to sign the agreement.

Without Iraq’s ultimate cooperation, some analysts said the scheme of fixed prices and production cuts could come unraveled as early as February. But if the complex plan comes together, OPEC might indeed reach its goal of $18 a barrel for crude oil.

The oil ministers acted after a long and seemingly rudderless meeting that, by some accounts, suffered from the absence of Sheik Ahmed Zaki Yamani, who was fired as Saudi Arabia’s oil minister in October in a dispute with Saudi King Fahd over oil policies.

Yamani Missed

“We missed him,” said OPEC’s president, Nigerian oil minister Rilwanu Lukman, when asked how the meeting went without Yamani. And how about Yamani’s replacement, acting Saudi minister Hisam Nazer?

“He’s OK,” Lukman said.

OPEC characterized the agreement early Saturday as a pro rata, 7% cut in production, by all cartel members except Iraq, to 15.8 million barrels per day from a current estimated production of about 17 million barrels for the first half of next year. It would also fix an average price of $18 a barrel for the more than 100 grades of OPEC crude.

Iran, whose own production ceiling is largely irrelevant now because of war damage to its oil export facilities, insisted that Iraq be subjected to a quota. But as it did when higher quotas were set last August, Iran backed down on this issue out of its determination to get some form of agreement to boost oil prices and aid its devastated economy.

Easing the Glut

The idea is to lower production enough to help to ease the world oil glut that has caused oil prices to collapse this year. The reduced supply would force up prices, and OPEC unity would further enable members to command the official price.

But a country-by-country breakdown of quotas shows that the level assigned to Iraq--a theoretical quota because Iraq refuses to abide by it--accounts for nearly half the cut in production promised for OPEC as a whole. Indeed, Iraq on paper would slash its production by 23% while everyone else would cut oil output by less than 4%.

“It’s a fiasco,” declared a representative of a British oil firm here.

Without Iraq’s cooperation, only about 660,000 barrels would be withheld from the market each day versus the 1.2 million claimed by OPEC. That, in turn, might not be enough to drive world oil prices to $18 a barrel--tempting OPEC members to undercut the “official” price to compete with cheaper oil priced in the open market.

Rising Production

Meanwhile, Iraq’s actual production--estimated now to be approaching 2 million barrels per day and scheduled to leap to 2.5 million by summer with the completion of a new pipeline--could eventually cancel out the entire production cut being trumpeted by OPEC.

The seemingly steep cut assigned to the Baghdad government in the quota system would bring Iraqi oil output more nearly in line with its historic share of overall OPEC production. It has grown sharply over the past two years, when quotas were lifted and Iraq’s war machine needed to be fed.

Iraq’s expansion to 2.5 million barrels a day would occur about the time of OPEC’s next scheduled meeting June 25 in Vienna, though Nigerian Oil Minister Lukman said that interim meetings could be called on the Iraq question or the possible need for additional cuts this spring to support the $18 price.

Saudis Have Leverage

OPEC observers said the final outcome of the 10-day meeting represented a means of walking away from the bargaining table and claiming an agreement despite the intractability of the Iran-Iraq dispute, leaving in Saudi hands the highly sensitive task of leaning on Iraq to quit producing so much oil.

“They’ve got to make it work by robbing Iraq,” said OPEC analyst Fergus MacLeod of Barclays, the London brokerage firm. “Much of this agreement remains under the table and depends on what the Saudis are able to do.”

Though far less populous and militarily weaker than both warring nations, Saudi Arabia has been Iraq’s chief financial backer in the war with Iran. The kingdom also has control over an Iraqi pipeline which runs through it and empties at a Saudi port, Yanbu.

In a failed effort to persuade Iraq to agree to the quota system last week, King Fahd, according to a British press account, implied to Iraqi leaders that there might otherwise be delays in implementing a planned higher volume of Iraqi oil through the Saudi pipeline next month. It apparently didn’t work, but Fahd is to try again.

More Time for Talks

“At the very highest political levels it was understood that Saudi Arabia needs more time to convince the Iraqis,” said Gholamreza Aghazedeh, Iran’s oil minister, on Saturday after the accord was reached.

The Saudis’ seeming leverage with Iraq is tempered by the importance that the Saudis, and OPEC ally Kuwait, attach to Iraq’s preventing an Iranian military victory. Some OPEC analysts argue that privately, Saudi Arabia would just as soon see Iraq continue pumping all the oil it wants to finance its highly successful air attacks on Iran’s oil facilities.

“I would not like to see Iraq backed into too tight a corner,” Sheik Ali al Khalifa al Sabah, Kuwait’s oil minister, said Saturday.

Overture to Iran

But recent cooperation between Saudi Arabia and Iran on oil policy, such as King Fahd’s concession to Iran that a production cut was needed to raise prices to his desired $18 a barrel, has suggested the Saudis are cultivating Iran as well. The firing of Yamani was seen partly as an overture to the Iranians, and it supported one line of thought that Iran is achieving new authority and stature in OPEC as well as in the Middle East.

Whether that is the case, there was little evidence that the Saudis played a leadership role in these latest talks, despite the power inherent in their enormous oil reserves.

Thomas R. Stauffer, a longtime OPEC watcher and professor at the Center for Contemporary Arab Studies at Georgetown University, said the Saudis abdicated any dominant role in these meetings by tipping their hand early on how badly they wanted a quick agreement.

“That enabled Iran to play the spoiler,” Stauffer said. ‘The only leverage Iran had was the Saudis’ own bargaining inexpertise.”

Stauffer quoted a delegate from another nation as saying that the Saudis “walked naked to the table.” He said it was clear that King Fahd, not Oil Minister Nazer, was calling the shots last week.

“Whatever his position was on oil prices, Yamani never would have let his government be trapped into this,” said Stauffer.